Feasibility study of a Greater Arizona Development Authority: final report

I
I GREATER ARIZONA DEVELOPMENT AUTHORITY
I FEASIBIL,TTY STUDY
I
I PREPARED FOR
THE
I ARIZONA
DEPARTMENT OF COMMERCE
I
!
! September 25, 1996
Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I
Section One - Infrastructure Needs in Arizona . . . . . . . . . . . . . . . . . . . . . . . 2
Survey of City CIPs
Transportation Needs
Wastewater Treatment Needs
Needs in Indian Reservations
Overall Needs
Section Two - Review of Other State Programs . . . . . . . . . . . . . . . . . . . . . . 4
Eligibility and Qualifications
Types o f Assistance
Funding
Financing Structure
financing Process and Requirements
Technical Assistance
Section Three - Survey of Local Government OF
Section Four - O v e ~ e wof Proposed Prograr
Need for a State Infrastructure Financing
BeneJits of a State Infrastructure Financi
Section Five - Services Provided by Gk
Technical Assistance
Financing Assistance
Participation Requirenzents
"Pooled" Loan Bond Issue Stru
The GADA "Resen~e'T und
Eligibility and Scope of Projects
Project Prioritizations and Selection
Greater Arizona Developme~ztA uthority
Section Six - GADA Organizational Structure and Administration . . . . . . . IS
Organizational Structure
Interrelation with Other Bonding Entities
Section Six - Start-up Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Overview
Tinze Line
Greater Arizona Development Authority
Feasibility Study
ZNTROD UCTION
Economic Development in rural Arizona, as in rural areas throughout the nation, has often
been restricted by the limited available public infrastructure. While the existing infrastructure may
be adequate to meet the communities current needs, the increased utilization resultir~g from
development often exceeds the existing systems' capacity. New businesses are reluctant to undertake
substantial commercial development or construct new facilities without assurance that the cornrnuniry
will be able to meet the infrastructure needs of the facility and its users. Adequate street and highway
systems, reliable and safe water supplies, dependable wastewater systems and all other basic, public
infrastructure systenls are fimdarnental to the success of these ventures. Thus, without infi-astsucture
improvements the hrther development of the community is limited. In recognition of ibis situation,
local economic development officials and comnlunity leaders have repeatedly requested ;rssistance
from the state in meeting their basic infrastructure needs.
In response to these frequent requests from rural communities and Indian tribes for assistance
in the development cf public infrastructure, the Arizona Department of Commerce has ernbarked on
a study of the feasibility of forming a state financing authority whose primary purpose w~uldbe to
assist ~uracl ommunities to develop and finance public infrastructure.
A consulting team of The hnlaguire Company allti Rauscher Pierce Refsnes, Inc. was retained
to assist the Deparlmetlt in the conduct of the feasibility study for the Greater Arizona Develspment
,4~1thority(G ADA).
'The first steps in assessir~g the need for and the proposed stmcture oi' a state level
infrastructure financing authority are: 1) the development of basic information concerning the
identified infrastructure needs of communities throughout Arizona; 2) a rcvie~vo f the stmct~reus sed
by other states for similar authorities; and 3) a survey of local government oiiicials and other
interested parties for suggestions and recommendations concerning the need fc~rp, urposes of and
structure of such an organization.
Section One - Infrastructure Needs in Arizona
In order to assess the demand for the services that might be provided by such an authority,
several approaches were undertaken to determine the infrastructure needs of communities throughout
Arizona.
Survey of City CIPs
Initially, a review of the identified infrastructure needs of communities throughout Arizona
was undertaken. Specifically, a sample survey of fifteen small to medium size cities tht have
developed a Capital Improvement Plan (CIP) was undertaken. In all cases, the infrastructure needs
identified within the cities' CIPs for a five-year-period were compiled and categorized. Although
some differences existed in the specific years covered by the various CIPs, in all instances a
representative five-year-period was included. As a result of this survey, total needs of $600 rnillioli
were identiiied for the fifteen cities reviewed.
These needs fall into a variety of categories, including street and road projects, public safety
projects, sewer and water system projects and several other categories. The largest single category
included more than $209 miilion in street and road projects and drainage projects. P4ore thai~7 00
projects were specifically identified. The average prc~ject size was slightiy less than $20C,000.
The cities included in the sample represent approximatziy four perce~to f the tota: state
population and seventeen percent of the state's popuiation excluding the two urban counties.
Extrapolating the sample data statewide (baszd on population) indicates statewide municipal needs
of almost $15 billion. Extrapolzting to the non-urban co~:nties population (all but Maricopa and
Pima) indicates needs of almost $3.6 billion.
The Capital Irnprovemect Plans developed by the cities iricluded a combination of hided and
unhnded projects. In most cases the CIPs included only firnded projects and wherc the cities 1.tac.l
identiiied unfunded additional needs these prc!jects were included within the CP. If'additiocal
resources had been identified at the titnt: of developing the CPs, it is likely that the CIPs would have
expanded. As a result, it is dificult to draw any reliab!e conclusions as to the precise amount of
urhnded infrastructure needs within the cities. However, the sample does indicate that sr~bstantial
infrastructure needs do exist throughout the small to rnedium sized conimunities with Arizona.
City Sr~rveyR esults
Streets Public Govt Solid Cultural
Total & Roaas Safety Sewers Water Facilities Waste Airportr, k Rec. Other
Total Value (000,000's) $600.6 200.3 37.7 93.0 52.0 21.6 77.3 28.4 79.0 11.4
# of Projects 728 26 1 62 78 54 34 54 21 137 27
Percent of Projzcts 35.9% 8.5% 10.7% 7.4% 4.7% 7.4% 2.9% 18.8 3.7
MedianProjectCost(OOO's)191.3 181.5 182.3 329.1 500 310.9 339.5 739.6 91.0 i91.2
Amount per capitn (000's) 3,542 1,181 222 548 307 i 27 456 168 484 67.4
In addition to the survey of Capital Improvement Programs of a variety of Arizona cities,
other existing sources of information that reflect infrastructure needs throughout Arizona were also
reviewed.
Transportation Needs
The 1995 Transportation Needs Study, conducted by the Arizona Department of
Transportation in conjunction with local governments throughout the state, indicates a total demand
for transportation projects of almost $7 billion over the next five years. Of this amount, $6.7 billion
is for street and highway purposes (which includes $2 bil!ion for Maricopa County freeways); up to
$464 million is for mass transit; up to $450 million is for airport projects; and up to $ 680 million is
for rail projects.
Wastewater Treatment Needs
Another source of valuable information concerning infrastiucture needs throughout Arizona
is the Wastewater Treatment Facility Needs Survey conducted by the Wastewater Management
Authority every four years. The 1996 survey indicates total need for firastervater treatment facilities
throughout Arizona of zlmost $2.2 billion over 20 years.
Needs on Indian Resewaticws
The National Center for American Indian Enterprise Development conducted an Asscssntent
of Infrastructure Nze& on Arizorrtr Indian Reservations and concluded that "in assi=ssiig, the
infiastrxture needs of Arizona's Indian reservations, it is apparent that an investment of ~t Ileast % 1.4
billion is needed to meet basic needs."
Overall, these various sources of information lead to an indisputable conclusion that there is
s~lbstantialn eed for additional public infrastructure throughwt Arizona. Furthermore, the demand
for infrastructure expailsion substantially exceeds the available resources. In many cases, the
anticipated infrastructure projects identified in the various studies rdlect only a portion of the total
need, projects without a clear source of fiirlding have not been included in the estimates. Thus, totai
need for infrastructure is likely even greater than the numbers reflected in this analysis.
Overall Needs
In summary, based on the information described above, the irlfrastructure needs of the various
political subdivisions, excluding the largest cities, and lndiarl tribes, conservatively total in excess of
$5.5 billion over the next five-year period.
Greater Arizona Development Aurhority
Section Two - Review of Qtlzer State Program
Another fbndamental step in assessing the need for and the proposed structure of a state level
infi-astructure financing authority is the development of basic information concerning the operation,
organization and effectiveness of similar programs operating in other states.
In order to assess the existing programs in other states, a survey of twenty states, with some
type of identified local infrastructure lending program, was undertaken. Not surprisingly, the various
state programs differ widely with regard to purpose, organizational structure, subsidies and the
degree of state involvement. Despite the wide range of existing programs around the country, a
number of generalizations can be drawn that may be usetiil in designing a potential prograrn for
Arizona. In all cases, the review focused on state-funded programs, not federally hnded programs
such as Community Development Bloclc Giants, Farmer's Home Administration loans, or wastewater
treatment revolving hnd loan progrzms.
Specifically, in each state contacted, a variety of characteristics of the program were reviewed.
The charactei-istics surveyed included: the stnlctvre of the program, eligibility by project type and by
jurisdiction. the type of assistance available from the programs (e.g., grants, loans, tech~iczl
assistance, etc.), any financial assistance or subsidies available from the program (e.g., reduced
interest rates, cost sharing, etc.), the source of hnding for any such subsidies, the financing structure
(if any) used by the program to "pool" or leverage infrastructure loans through the program, the
overall eEectiveness of the program, and any suggestions for a new program.
States Snweycd
Alaska
Colorado
Florida
Illinois
Kentucky
Louisiana New Mexico
h5aine New York
Michigan Ncrth Dakota
Nebraska (> hi0
New Hampshire Oklahoma
Oregcn
Pennsylvania
Texas
Virginia
Wisconsin
In general the survey of the states revealed the following:
Eligibility and Qualijicuuons
In most states virtually any type ofpublicly owned infrastructure is eligible f ~ r
participation in the programs.
Similarly, in most states any political szrbdivision authorized to constmuct or operate
infrastructure is eligible for participation in the programs.
All programs have some type of financial capability evaluation for participants to be
eligible to receive a loan. The degree of security required varies substantially from program to
program. Some programs permit borrowers to participate with revenues barely sufficient to meet
the loan repayment requirements; other programs require substantial surplus local revenues
beyond the loan repayment amounts.
Zypes of Assistance
Virtually all states provide substantial technical assistance to the participating local
governments. This assistance often includes advice on the timing and planning of the proposed
infrastructure and its financing.
States varied widely with respect to the types of financial assistance or subsidies available.
Some states provided substantial subsidies in the form of low interest loans, partial gracts and
bond issuance cost subsidies, while others acted only as a conduit bond issuer passing ali costs
directly through to the local borrower.
finding
Most state programs that provide subsidies receive recurring legislative appropriations for
the subsidy costs. This legislative suppcrt comes in a variety of different forins. in some
instances, the state appropriates amounts sufficient to meet the program's annual bond debt
service payments, in others a dedicated revenue source is availzble for the program's use and in
other cases substantial front-end appropriations to a dedicated. special hnd provide a source OF
ongoing earnings to operate the program and finance any subsidies.
In states without ongoing appropriations, some programs that provide small subsidies
(e.g., reduced costs of issuance) use interest earnings from a dedicated (sometimes pledged) k n d
to finance these subsidies as well as their ongoing operating expenses. Other state programs
charge participating local governments an administrative fee, either annually throcghout the Iife of
the loan, upon closing or both. Again, these fees are typically used to provide operating funds for
the program. However, the level of such fees is severely limited in programs that do not prcvide
substantial interest cost subsidies.
Financing Structure
Many state programs issue bonds to finance the loans made to local governments for
infrastructure development. In these instances, the state pr0gra.m lends money to local br~rrowers
and in turn issues bonds filly or partially secured by the loan repayments. The bonds are issued
in the name of the state program.
In virtually all states that issue bonds, the bonds are secured primarily by the local
government revenue derived from the project being financed and used to make loan payments.
Grenicr Arizona Development Authority
In addition, many states use either state-level general obligation bond authority or a state-level
moral obligation (an implicit promise to pay in the event of a default) to improve the credit
rating of the bonds issued by the state authority. In states without moral obligation authority, a
dedicated fund is frequently used to provide additional security for the program's bonds.
Programs that do not rely on either state general obligation or moral obligation security
use several techniques to strengthen their program's creditworthiness.
Typically, a special, dedicated fund has been established to strengthen the program's
credit. Often monies in the fund are available as a debt service reserve, to make bond payments in
the event of a shortfall in local loan payments and earnings from the fund are used to defray
program costs.
In some cases, rnonies in the fund are used to rnztch bond proceeds to make loans to local
governments. In these cases the local loan repayments exceed the debt service on the program's
bonds by the inverse of the matching ratio. These available excess monies strengthen the
program's bond rating beyond the credit of the underlying borrowers.
In several states, a state aid "intercept" mechanism has been i~nplementedb y ~i?ichLI IC
state treasurer (or the distribution zgency) may redirect state-shared-revenues f?om a local
borrower to the bond trustee to prevent a default on the program's bonds in the event a local
borrower hils to make scheduled loan payments.
Most of the programs use a pooled financing structure througl~w hich severa! Ioazis to
local borrowers ate bundled together to form the basis for a single state level bond issue.
However, each borrower is reaponsibie solely for the repayment of its Ioan. There is no cross
liability among the various participants in state level bond issue.
Often the bonds are issued under the provisions of an "open" bond indenture that provides
for a common debt service reserve fund to be shared by all bonds issued by the pragram. Ucder
the "open indenture" structure any dedicated state hnd can also be used as additional security for
the state program's bonds.
In other states the local loans are combined into a single bond issue where the payments
on each loan are segregated from all other loan payments. In these cases, the state program is
simply a "conduit" issuer passing the loan payments and the "credit" of the local borrowers
through to the bond holders. Typically, little, if any, credit enhancement is provided by tile state
program. Programs of this type usually have some other incentives to encourage participation.
The incentives are as varied as the programs and are often related to the legal (constitutional and
statutory) environment of the particular state.
Greater Arizona Developmerrt Authority
Financing Process and Requirements
Virtually all the state programs have worked (and continue to work) to streamline the
application, qualification and financing process. Some states have adopted a single application
process and form for multiple programs. (One state is currently expecting approval to use a single
form for both state and federal assistance programs.)
Virtually all the programs work with the local borrower to facilitate qualification. In inany
instances, state personnel assist local officials in determining the actions that must be taken to
allow the local borrower to qualifl. For example, a local community may need to increase or
restructure its water and sewer charges to increase revenues, prior to receiving assisrance.
Technical Assistance
Most state programs provide substantial technical assistance to local com~nul~ities
throughout the infrastructure development proccss. The assistance typically includes all phases of
the project planning and financing process.
Often state program personnel provide advice and hands-on assistance to local ofticiais in
preparing their capital improvenlents plans, reviewing and evaluating proj~cat lierr~atives,
developing required financial itformation, reviewing and evaluating the available revenges.
icienti@ing modific~tiansto the pledged revenue structure; preparing the program application and
generally assisting throughout the entire development and financing process.
In some states, the technical assistance programs ope~atein dependently of the financing
process and are available to all communities including those not invoived with a state loan fif an)
type.
ORen the participation of small communities in the financing program has been dependent
on the technical assistance. Without substantial technical assistance, illany :;mall cormunities are
not able to develop the basic information and organization necessaql to participate in the state
programs.
Grenter Arizotrn De~~eloprno/lrcl &/tori@
Section Tlzree - Survey of Local Government Officials
As a final step in determining whether a state level infrastructure financing authority would
be beneficial to Arizona, a series of discussions with officials from local government jurisdictions,
including some that might participate in such a program, and other interested persons were
undertaken. The purpose of these discussions was to determine the level of interest in such a
program, if it existed, to ascertain their views of the potential benefits of such an authority, to
solicit their suggestions on what such a program might offer to participating Iocal jurisdictions as
well as their assessment of the relative advantages of different organizational structures.
Members of an Advisory Committee formed by the Arizona Department of Commerce were also
solicited for their thoughts and suggestions concerning the structure and operation of such an
authority.
virtual!^ all the individuals surveyed agreed that such an authority could be valuable. if
properly organized and focused. Specifically, it was generally agreed that the authority's kcus
should be public infrastnlcture of the type cutrently developed by cities, towns, counties and
special purpose districts in Arizona. Further, the authority should assist local governments to
carry out their existing responsibilities without granting additional powers or imposing additional
obligations on these jurisdictions.
Most, especially those from smaller communities, felt that the stare could provide a
valuable service by making qualified technical assistance available to local elected and appointcd
officials through every phase or the iilfrastmcture developinent process. Such assistance wou!d
be valuable during the initial evaluation of local needs and aftcrnative approaches, while s-zviewing
proposed design alternatives, when determining the adequacy of existing revenue sourczs lo
finance the identified project, in construction bidding process, ti~rroughoutt he construction
process and ~iltimatelyd uring the start-up phase of operation of certain facilities.
Many felt that a "pooled" loan program, which u~ouldj3 rovide loans to local governments,
might be of significant value as well. Often smaller communities would financ,e an infrastmr,ture
project over several years, however the costs and complications associated with a bond issue arc
too great given the size of the project. A program that made such financi~gm ore cost effective
and easier would be valuable to many small governments.
Whether specific jurisdictions would be likely to participate in such a program would be
determined by the financial benefits of participation on a case by case basis. In general, larger
jurisdictions with substantial infrastructure programs and established, favorable credit ratings
would be unlikely to participate, while smaller cornmimities that wou!d benefit from the "pooling"
process would be more likely to participate.
Greater Arizo~raI~ evelopn~erArtu thority
In addition, some method of improving the "marketability", or perceived credit
worthiness, of the debt of smaller Arizona communities was viewed as a potential benefit.
Several approaches were suggested with the common objective of lowering the cost of boi-rowis
for the participating ju~isdictions, while not transferring the responsibility for repayment to the
state.
There was no consensus regarding a requirement for a local public vote to authorize
participation in any loan program. Some of those surveyed felt a clear expression of public
support for the proposed infrastructure project, as expressed through voter authorization, is
important. Others felt that no additional requirements, beyond those already in law ibr other
forms of financing, should be imposed.
It was generally expressed that the control over the initiation and scope of any projests
should remain at the local level. The state program sl~oulds upport the local jurisdictions' eirorts,
not replace or redirect them.
In conclusion, those surveyed expressed a clear ccnsensus that there was a genuine nsed
for some form of assistance to local governments outside the major metropalitan arens in
developing needed public infrastructure. A state level authority, by providing technical a d
financing assistance, would help smaller communities meet and address their essential necds in an
effective and eflicient manner.
Greater Arizr~~Im~ e~~elopmAeu~tltotr ity
Section Four. - Overview of Proposed Program
Need for a State Infrastructure Financing Aut/llority
As discussed above, local government officials throughout Arizona, identified several
specific areas of needs that appear common to many rural communities. Frequently, these
communities need basic technical assisiance in determining the scope and nature of an
infrastructure project to undertake in order to respond to existing needs, changing conditions or
state and federal mandates. This technical assistance must be available from the earliest planning
stages in order to assist these jurisdictions in maximizing their use of and the benefits fi-om limited
local resources.
Small communities also often have difficulty accessing the national capital markets due to
the small dollar size of their financing needs and their limited experience in such markets. Due to
some of the fixed costs associated with bond issuance, firlancing srnaller projects inay not be cost
effective. Further, the bond issuance process can be time consuming and uncomfortable for some
local officials.
Often these communities have limited financial reso:rrces. The higher borrowiirg costs
associated with small projects in small communities with lower credit raiings (due to the
infrequency of financings, inexperience, a limited econorxic base, or other factors) eXectivaiy
preclude these communities from financing their capital projects.
Benefits of a State 1rrfassr-r.zrcturcF innncirzg Aufhori<y
A state level organization thzt could provide recii:~ical and financing assistance to these
local communities would be very usefbl in helping Arizona, meet the substantial il~frastructure
needs identified in the sunrey of local jurisdictions. Such an authority, the Greater Arizona
Development Authority (GADA), could assist smalle; communities in developing and financisg
basic infrastructure projects.
In general, GADA will heip local governments throughout the state finance those projects
that they are currently authorized by law to undertake, but have not due to the difficulties
described above. The purpose of GADA will not be to grant ar,y additional powers or
responsibilities to these local jurisdictions.
Specifically, GADA could provide technical, "hands on" assistance to loca! goiler~~mei,ts
in designing, reviewing, planning, financing and managing their infrastructure pro-iects. A
centralized source of current information and expertise concerning managing infi-astructure
project development, financing and management wouId be of great value to local elected and
appointed officials througho~t~hte state.
Greater Arizorta Development Autlrority
In addition, GADA will provide improved access to the national capital markets for
smaller communities with limited financial resources or experience that are seeking to finance
lower dollar amount projects.
GADA could reduce the borrowing costs of these communities by simultaneously
financing several smaller loans in a single, market sized bond issue. By combining several smaller
borrowings into a single bond issue, GADA will be able to share many of the costs associated
with a financing transaction amorig all the participating bo~rowers, thereby reducing these costs to
each individual local government.
All existing, authorized political subdivisions of the state (counties, cities, towns, special
districts) and Indian tribes would be eligible to finance projects through GADA. Sitxilarly, any
project currently authorized by state law as permitted undertaking of a political subdivision would
be eligible for participation. It is not the GAI>A's purpose to aiter the existing system of
governance within the state.
In essence, CTADA will serve as a supportive partner for local government in the;
development and financing of local infrastructure projects without irlcreasing the powers oi
responsibilities of these jurisdictions. It should not be CiADA's sole to evaluate the merh of
locally detertilined projects, as long the communities demonstrate the clear local support for the
project and the associated indebtedness. Those decisions will remain a local issue, best decided ,?1
the local level.
Crearer Arizona Developmettt A~cthoriiy
Sectiotz Five - Services provided by GADA
The various local government officials and other interested parties as well as the survey of
other states' programs indicate the benefits of a state level infi-astructure development authority,
such as GADA. The recommendations that follow reflect their suggestions and community
concerns, in particular, the desirability of a structure to support local project development and to
assist by lowering financing costs through pooling, cost sharing and sta~dardization.
Technical Assistance
The first step in assisting local communities in developing and financing their
infrastructure needs is providing "hands on" technical assistance through ali phases of the
development process. GADA will provide such assistance to local governments throughout the
state. G-OA will be available to assist both elected and appointed officials in understanding the
various aspects to the infrastructure development process and in presenting the pro-jeci to local
residents.
Specifically, GADA wili provide technical expertise and advice during the initial project
conception process and during the plaiming and design of the project, including assisting in the
selection of external technical consultants, when needed. GADA will be zble to assist local
officials evaluate alternative construction options and the associated costs azd benefits.
Subsequent to the planning and design phase, GADA will be able to assist local cormunities in
preparing for and evaluating the financing of the pro-ject and will provide technical support arid
assistance, throughout the financing proczss, regardless of the financing source.
During the construclion phase, GADA can assist local officials oversee the pr-ject and
help assure the timely and appropriate completion of cor~structionin accordance with the design
requirements. GADA will provide direct assistance to local communities, but will nct rep!ace all
the various technical, professional consultants typically retained to assist these comlunities. For
example, while GADA will be able to help in the evaluation, selection and management of a
professional engineer hired to oversee the construction of a wastewater treatment facility, it \.rill
not be able to eliminate the need for such technical expertise.
By working with a variety of local jurisdictions throughout the state, GLDA will be able
to share the prior experiences of other communities. Over time, the "hands on" experience gained
by GAnA will become an invaluable resource for all communities. For example, comparative
information regarding service charges in other cornunities can be important information for
governing board discussions and public information on the costs and benefits of a proposed
infrastiucture project.
Financing Assistance
One means of providing financing assistance to local political subdivisions and Indian
tribes will be through loans to finance infrastructure projects. GADA will combine several,
smaller local loans into a single, larger bond issue for sale in the national financial markets.
Interest on the loans to local participants would be at the same interest rate as the GADA bonds.
As discussed in greater detail below, the GADA bonds will be secured by the loan
payments to be made by the participating local jurisdictions and by the dedicated hnds of the
Authority. In addition, GADA would establish a "back-up" pledge of state shared revenues to
strengthen the credit of smaller cities and counties. These additional credit supports would
effectively provide many con~munitiesw ith a significantly improved bond rating. The improved
bond rating will result in lower interest rates and a lower cost of borrowing for the local
jurisdictions.
In order to facilitate the timely constniction of needed local infrastructure while
maintaining the advantages of a "pooled'" bond issue, GADA should consider establishing a
regular schedule for its financings. Under such at1 approach, G D A might establish a semi-anunal
issue schedule (e.g., each April and October) so that local communities could plan accordingiy
and cocld rely or, monies being available when needed to pay contractors. Alternatively, GADA
could undertake a "pooled" bond issue whenever sufficient loans have been compiled to constitute
an appropriately sized bond issue.
Locd loans fiom CJADA sl-lould match the expected usefill life of the project to be
financed, not to exceed twenty years. To maximize the resources of the Authority, loa~lssh oulci
be repaid with equa! annual payments, with interest paid serniannualiy and principal paid atrmially.
GADA may also be able to work cooperatively with loca! financial institutions to provide
direct loans to local governments for infrastructure projects. In such cases, the loans \vc~u?db e
additionally secured by GADA's dedicated funds.
Alternatively, GADA may provide financing assistance through other forms of credit
enhancement to local borrowers including letter of credit assistance, bond insurance cr
supplemental reserve hnds.
As GADA develops it may be possible to provide short-term financing for up-front project
feasibility and/or design study costs, which could then be included in the overall project financing,
or to provide short-term bridge financing between pooled ioan bond issues.
Participation Requirements
In order receive a GADA loan (through a p~oledlo an bond issue), a local community will
be required to demonstrate the financial capacity to repay the GADA loan. The repayment of the
loan must be guaranteed by a legally binding pledge of a specific local revenue source, such as
Greater Arizr~tm1 )er-elopmeruA tiihority
local water and sewer charges. Typically, such financial capability is demonstrated by historical,
annual revenue collection, net of existing obligations, in an amount greater than the annual !oan
repayment amount. Local borrowers will also provide a "back-up" p!edge of state shared
revenues.
Local participants will also be required to fund a resenre fund in an amount equal to one
year's loan payments. These monies will be available to make a required loan payment (which is
in turn used to make a portion of a GADA bond debt service payment), if a local borrower fails to
make a payment on time and "defaults" on its obligation.
While GADA's dedicated finds will be pledged as additional security for its bonds, these
monies will only be used to make debt seivice payments in the unlikely event of a default by a
local borrower. These monies will not be expected to be used to make routine payments on
behalf of local pzrticipants.
"Pooled" Loan Boixi Issue Slr~ccture
The pooled loan program operated by GADA will provide a silnplified and cost-ef-i'ective
means for small conlrnunities to access the national capital markets. In order to siinpli@ the
financing prGcess as much standardization shculd be developed as possible. For example,
standardized loan agreements and legal forn;s will eliminate the need for customized legal
documents for each local participant, thereby reducing the costs and review time associated lvith
these project financings.
Thc bzsic structure of the pacled loan program will be based or? loans rnade by GrlDA to
local governillcnts for infrastructure projects. These !oms will be secured by a pledge of local
revenues sufficient to repay the loan with interest. As mentioned above, historical, annusl,
pledged revenue ccllections, net of existing obligations, will have to be demonstrated to be
greater than the annual loan repayment amount.
Locally imposed property and sales taxes, sharea highway user revenue find moiues and
charges and fees for local services, such as water and sewer service could be used as pledged
revenues.
Unlike some other state's infi-astructure development authorities that issue bonds secured
by the generaj obligation or ntorul oblzgutim authority of the state, because of Arizona's
constitution, GADA's bonds will have to be additionally secured through several other nieans.
Local cities, towns and counties will be required to provide a "back-up" pledge of state
shared revenues to make loan payments, in the event of a default by the local borrower. 'This
"back-up" pledge of shared revenues will improve the security behind the local loans and
therefore the bond rating of the GADA bonds in two wrys. First, the shared revenues will
provide an additional source of revenue to make loan payments if rieeded. Second, the statewide
Greater Arizotm Ilevelnpment Aufltnrity
collection source for these shared revenues will broaden and divers@ the uilderlying economic
base for the local community's pledged revenues. This second factor is of particular value to
isolated communities and communities heavily dependent on a single industry or employer. The
diversification gained by the "back-up" pledge of state shared revenues substantially reduces the
risk associated with a single, isolated, local borrower.
Specifically, in the event of a loan payment default by a local borrower, thc State
Treasurer will withhold an amount equal to the shortage (plus costs) from the next scheduled
distribution of state shared revenues. The monies withheld will be used to replace the shortage.
GADA will combine several smaller local loans into a single, larger GN>A bond issue.
The proceeds of the GADA bond issue will be used to fund the loans to the participating local
jurisdictions and the loan payments from these local governments will be used to pay the debt
service on the GADA bonds. The interest rate on each loan will be equal to the rate on the
GADA bonds.
Following the closing of the GADA bond issue; the proceeds will be used to k::d the
loans to the local participacts. Monies will be released on a reimbursement basis or directiy to
contractors at the borrower's direction.
Local participants will have to fund a loan paynient reserve filnd in order to participate in
the program. This "10cai'~ reserve will be available to make a required loan payment if the local
borrower defazrlt..;. that is fails to make a schedule loan pyment on time. Thesc reserves \vill be
available only for the local Qovernment that hnded them. In other words, a local reserve hnd
will not be available to a default by another participating jurisdiction.
In addition, GADA will pledge the monies in its dedicated hnd to make GADA bond debt
service payments in the event of a shortage in the local loan payments. These monies will provide
additional security for purchasers of the GADA bonds and will also to act to improve the credit
rating of the GADA bonds, which will result in lower borrowing costs.
The GADA "Reserve " Fund
A crucial aspect of the structure of GADA is the size and nature of its dedicated fUrLding
source. GADA must establish a dedicated fund to serve as an additional source of paytnerrt for its
bonds, in the event of a shortfall in loan payments from a participating local government. In
general, GADA should be able to make at least five dollars of !oms (and issue five dollars i i ~
bonds) for each dollar available in its dedicated fund.
In order to be effective, the monies held by GADA must be irrevocably dedicated to the
purposes of the Authority. This dedication must be similar to the dedication of the Highway 'lJser
Revenue Fund to street and highway purposes. Without such dedication, the moiies will not be
Grcnrer Arizortn I>eveloptnent Ardf~ority
considered permanently available to secure any GADA bonds and the anticipated benefits will not
be received (and passed on to the local borrowers).
The source of funding for GADA's dedicated fund is of less importance than the
permanence and the amount of the dedicated monies.
Any appropriated monies received by GADA (excluding loan payments) should be
deposited to a single hnd to be used exclusively for the purposes of GADA. Monies in the
GADA fknd should be invested by the State Treasurer and the earnings returned to the fund.
Earnings should be available to pay for the administration of the Authority, the Authority staff and
overhead, the costs of technical assistance and the costs associated with the issuance of GfiDA's
bonds.
The amount and nature of the dedicated n~or,iesa re crucial to the success of GADA.
Without sufficient funds, GADA's bonds will lack the critical additional s2curity provided by the
dedicated monies. This will reduce the creditworthiness of the GADA bonds and raise the cost of
borrowing funds through GADA. As a result it will be iess likely ihat e!igible local governments
will participate in the GADA program.
Furthermore, if the monies in the dedicated fund are insufficient, the earnings will not
support the necessary level of technical assistance to local communities. Technical assistame is
needed at ths eailiest stages of the infrastructure development process, zs local communities
attempt to define and develop proje~tsth at wi!l eventually be financed. Therefore. G D Aw ill
begin to incur technica! assistance costs shortly after st2rt up and will nzed subsiantizl f o:~t-end
hnding to carry out this critical aspect of its mission. In short, without adequate funding, G.4DA
will fdil.
Eligibility and Scope of Projects
All counties, cities, towns. special districts and Indian tribes should be eligible to
participate in the programs offered by GPLDA. No categorical exclusion by popuiation, size or
geographic location should be imposed or, participation.
Similarly, any publicly owned infrastnicture constnlcted by these jurisdictions should be
eligible for financing assistance through the author it.^.
Although the primary focus of GADA will be on providing assistance and support to
smaller communities, a categorical exclusion of larger communities would be inappropriate for ri
state level organization like the Authority. Jn practice, paxicipation will be self regulating.
Medium sized and larger communities, with more diversified economies and higher credit ratings,
will receive no financial benefit from the Authority's "pooled" loan program and will therefore not
participate. It is possible that some of these communities may be able to benefit from the
experience and expertise GADA will develop through working vJith local governments over time.
To the extent this knowledge can be of assistance to any Arizona community, it should be
available.
Any maximum limits on the size of a project that may receive assistance should be
carehlly considered. Larger projects are the most difficult for small communities to complete and
are oRen those with the highest local priority as a result of a federal or state mandate. Snlaller
communities may frequently be able to complete routine capital in~provementsw ith available
reserves, but are unable to undertake larger projects due to the financing requirements.
The need for a project size limit should be reviewed after several years of GAI3k's
operation to determine if circumstances have changed. At the same time, the possibility of a limit
on the total amount of loans to a single community should also be reviewed. Again, such a limit
need not be initially imposed because the financial capability requirements of the loan program
will impose a natural (market) limit on the loan capacity of each participati~gc ommunity.
Prcjcct Oriorifization a~zdS election
The Authority should develop criteria and guideli~esfo r the prio~itizationo f local
infrastructure projects for the receipt of tec'mical and financing assistance. These guidelirjes will
allow GADA to focus its limited resources on the prcjects with the highest priority from it
statewide perspective.
The prioritization criteria should be developed by the AutRority following care&!
consideratior-, of the suggestions and recommendations of local public officials from throughcut
the state. However, some general priorities can be suggested as an initial system.
Projects that I) meet current infi-astn~cturen eeds; 2) address public health and safely
concerns, OR 3) provide basic infrastructure for growing areas (projected within the nex? five
years) shculd be given the highest priority. Basic infrastn~cturep rojects needcd to encourage
general economic development sh~uldbe given the secocd highest priority. Projects that provide
other types of infrastructure for other public purpose should be given third priority.
Local jurisdictions should submit potential projects for evaluation on an annual basis.
Based on the projects submitted and using the established criteria, GADA should prioritize the
projects for technical and financing assistance. Typically, a project will be eiigible for technicd
assistance prior to being prioritized for financing assistance.
Selected projects should be announced following the evaluatitx~p rocess and shou!d be
eligible for assistance immediately thereafter. 'The number oSprojec.ts selected each year will vary
depending on the complexity of the projects and the availability of GIWA resources Mal~y
projects receiving technical assistance may not be completed in a single year and therefore
ongoing project requirements will have to be considered in determining the number of projects to
be selected for the following year. If the projects selected are completed prior to the next annual
Greater Arizona Descloptnerrt Autlroriy
application and selection process, GADA may be able to provide assistance to additional
communities from the previous list of applicants.
Technical assistance should be available to local communities throughout the project
development process. This assistance from GADA should be available on an as needed basis,
however, GADA cannot and should not replace the i~volvemento f local officials or their qualified
external professional consultants. Rather, GADA experience and expertise should suppletnent
and comp!iment the local "project team". Local governments must commit the time and resources
necessary to complete their infrastructure project. GADA cannot devote scarce resources to
projects that do not receive essential local support.
Financing assistance should be available to local communities when infrastructure projects
are ready for construction. OAen the pre-constnlction phase may take several years. Projects
should be selected for financing assistance when the necessary feasibility studies, engineering
design and specifications reviews and other required analyses have been completed. In addition, 2
source of revenue that will be pledged to the repayrneld of the GADA loan will have to be
identified and evaluated and all necessary approvals needed to proceed with the pr9-iest will: have
to be in place.
Greater Arizotrrr I ~ e ~ ~ ~ f o ~A~trrlnlreorritryt
Section Six - GADA Organizational Structure and Admiu~istration
Organizutional Structure
GADA must be established as an independent Authority, separate from the State of
Arizona. It should be controlled by a board of directors composed of nine members. Five
members appointed by the Governor and approved by the state Senate. In addition, the Director
of the Department of Commerce, the Director of the Department of Transportation, the Director
of the Department of Environmental Quality and the State Treasurer should serve as ex qfficio
voting members of the board.
The Chairman of the board should be the appointed mernber serving the final pear of his
term. If that member was appointed to fill a vacancy less than one year earlier (or chooses not to
serve as chairman), the member next nearest the end his term should serve as chairman.
Appointed members should be permitted to serve up to two consecutive terms.
The appointed members of the board should be private citizens representing difl2rent areas
of the state. The appointed members of the board should be appointed for staggered, terms of
five years. Vacancies should be filled by appointment for the remainder sf the unexpired term.
Appointed members should continue to serve until a successor has beer, appointed by the
Governor.
All policies and procedures of the Authority should be approved by the Board. The Bo~rd
should also finally determine projects to receive technical and financing assistance. T"r~!eh a r d
should aFpi-OVe all loans and issue bonds in the name of the Authority.
The Authority should be staffed by competent professionals selected by the Diruzt~ro fthe
Department of Commerce. The department should provide space and equipment for the
Authority staff and the Board.
Initially an executive director, a program specialist and an administrative assistan! should
be assigned to the Authority. As the programs of the Authority develop, additional professional
staff may be required. The salaries, benefits and expense of GADA staff should be paid fiom
earnings on the Authority's dedicated hnd.
In addition to the internal staff, GADA will need to retain ex?ernal professionals tc! assist
in providing technical assistance to local participants. T'nese external professicnals may becorne
less necessary as the GADA staff expands and gaitis experience. However, some exte~nal
professional assistance will continue to be required on an as needed basis through the life of the
program. These professionals should also be paid with earnings from the dedicated fund.
As with all development and financing authorities, GADA will be expected to retain
professional assistance in connection with issuing bonds. Bond counsel, a financial advisor,
underwriters, a trustee and various other professionals will be required. Typically, these costs
would be paid with proceeds of the "pooled" bond issue and included in the amount of the local
loan repayments. However, to the extent that sufficient rnonies are available, the Authority may
choose to pay some of these costs from earnings thereby reducing the costs borne by the local
borrowers.
Because the Authority will be issuing bonds and managing substantial amounts of money,
it is essential that adequate financial record keeping system be initially established. Detailed
revenue and expenses tracking as well as an automated loan payment monitoring system should be
implemented.
Carehl accounting and allocation of all dedicated monies must be maintained. The
financial records of the Authority should be maintained in accordance with the standardized
practices applicable to government agencies established by the Governmental -4ccounting
Standards Board (GASB) and audited by an independent zuditor annually. Detailed repofis of all
expenditures and revenues should be present to the Board quarterly and an annual repol-, prepared
and presented to the Governor and the Legislature. Again the cosr s associated with these
activities should be paid with earnings.
Finally, it may be permissible to redirect some federal hnds received by thc state a11d
particularly by the Department of Commerce, to pay some of the costs incurred by the Authority
To the extent such reallocation is possible. it shsu!d be considered.
Interrelntjon with Other Bonding E~itities
The MDA will join the existing \,'astelvater Management Authority and the plarined
State (Tra~sportation)I nfrastructure Bank as n source of assistance t~ locat communities
developing irfrastructure.
The Wastewater Management Autlroritv is responsible for overseeing the wastcvv~ater
treatment revolving hnd, which makes low cost loails to local commufiitities to finance the cost of
treatment facilities. The WMA will also, probably, be responsible for the drinking water revolving
hnd authorized by the federal Clean Water Act, which will provide similar loans for drizking
water projects.
The State (Transportation) Infrastructure Bank is currently beilrg established by the
Arizona Department of Transportation in response to a federal pilot program and will provide
assistance to local communities in developing streets and highways.
Although the specific purpose and mission of each of the organizations is different, all
have a common objective of helping local governments develop infrastructure. As a consequence
it is critically important that all three organizations cooperate and coordinate their efforts.
GADA will have the broadest charge of any of these entities and therefore niay be able to
assist communities that cannot receive assistance for certain projects from the other state level
organizations. In some instances, a combination of GADA assistance and assistance from the SLB
or WMA may facilitate the completion of a project.
(knter Arizorm Develq>rnent Authority
Section Seven - Start-up Procedures
Overview
The first year of operation of a new organization like GADA is both a difficult and
critically important phase in the entire life of the organization. The establishment of appropriate
rules, procedures and operating practices will largely determine the fbture success or failure of the
program.
The transition from a conceptual proposal to an operating organization is a difficult
process that requires careful planning and scheduling. The following time line illustrates some of
the major events that should occur during the Authority's first year of operation.
Time line
Date
Spring 1997
April
h4a.y
July
Mid-summer
August
Event
L,egislativc: Hearings on M A
legislation
Enactment of legislation
Selection of GADA staE by
Commerce Director
Selec,tion of private members by
Governor
Staff begins preparation of draft
tules znd procedures
Staff establishes accounting
system for dedicated monies
Infoimal meeting of board
members to discuss procedures
Legislation becomes effective
First Board Meeting
Review of draft nlles and
procedures for selectiori of
pro-iects
Comments
Local suppcrt, if possible
In miicipation of start-up
90 days after the end of
legislative session
Greater Arizona Devetopnrcrtt Author@
August (con't) First Board Meeting (con't)
Adoption of operating budget for
current fiscal year
Initial public announcement of
GADA organization and
programs
Annual League of Cities
Conference
September Second Board Meeting
Adoption of rules and procedures
and submission to rulemaking
process
October
Governor's Rural Development
Co nf e, rence
Third Board Meeting
Quarterly Report or" revenues and
expenses
Distribution of Prelimi~arj
application procedures (subject to
final adoption of nrles)
Regional outreach seminars on
GADA's activities
November Fourth Board Meeting
Final approval of rules and
procedures
Announcement of application
deadline of Febnlary 1
December
January 1998
Fifth Board Meeting
Selection of program consultants
Staff assist locai olficials in
preparing application forms
Sixth Board Meeting
Opportuility for Presentation
Oppoitunity for Presentatioi:
Greater Ariznrru Develo,7metrt Acrtltorify
January 1998 Quarterly Report of revenues and
(con't) expenses
Regional outreach seminars on
GADA's activities
Februaiy
March
May
June
Application for assistance due
Seventh Board Meeting
Preliminary review of applications
Staff reviews applications and
scores based on criteria
Eighth Board Meeting
Preliminary review of project
prioritizations for technical and
financing assistance
Ninth Board Meeting
Ann~uncement of projects
selected for technics1 assistance
Quarterly Report of revenues and
expenditures
Initial technical assistznce
meeting on selected projects
Staff develops budget for next
fiscal year
Tenth Board Meetiag
Announcement of projects
selected for financing assistance
Budget for next fiscal year
adopted
Eleventh Board Meeting
Pooled loan bond issue scheduled
for September
Staff prepares for close of fiscal
year
July
August
September
October
'I'welfth Board Meeting
Quarterly Report of revenues and
expenditures
Board reviews progress on bond
issue
Thirteenth Board Meeting
Annual report on revenues and
expenditures
Report on technical assistance
projects
Board reviews progress on bond
issue
Annual League of Cities
Conference
Fourteenth Board Meeting
Board issues pooled loan bonds
Audit of prior year financial
records
Staff prepares annual report
Governor's Rural Development
Conference
Fifteenth Board Meeting
Quarterly Report on revenues and
expenditures
Greater Arizotra I~evelol,metA~uf thority
Opportunity for presentatio~ls
Opportunity for presentations

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I
I GREATER ARIZONA DEVELOPMENT AUTHORITY
I FEASIBIL,TTY STUDY
I
I PREPARED FOR
THE
I ARIZONA
DEPARTMENT OF COMMERCE
I
!
! September 25, 1996
Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I
Section One - Infrastructure Needs in Arizona . . . . . . . . . . . . . . . . . . . . . . . 2
Survey of City CIPs
Transportation Needs
Wastewater Treatment Needs
Needs in Indian Reservations
Overall Needs
Section Two - Review of Other State Programs . . . . . . . . . . . . . . . . . . . . . . 4
Eligibility and Qualifications
Types o f Assistance
Funding
Financing Structure
financing Process and Requirements
Technical Assistance
Section Three - Survey of Local Government OF
Section Four - O v e ~ e wof Proposed Prograr
Need for a State Infrastructure Financing
BeneJits of a State Infrastructure Financi
Section Five - Services Provided by Gk
Technical Assistance
Financing Assistance
Participation Requirenzents
"Pooled" Loan Bond Issue Stru
The GADA "Resen~e'T und
Eligibility and Scope of Projects
Project Prioritizations and Selection
Greater Arizona Developme~ztA uthority
Section Six - GADA Organizational Structure and Administration . . . . . . . IS
Organizational Structure
Interrelation with Other Bonding Entities
Section Six - Start-up Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Overview
Tinze Line
Greater Arizona Development Authority
Feasibility Study
ZNTROD UCTION
Economic Development in rural Arizona, as in rural areas throughout the nation, has often
been restricted by the limited available public infrastructure. While the existing infrastructure may
be adequate to meet the communities current needs, the increased utilization resultir~g from
development often exceeds the existing systems' capacity. New businesses are reluctant to undertake
substantial commercial development or construct new facilities without assurance that the cornrnuniry
will be able to meet the infrastructure needs of the facility and its users. Adequate street and highway
systems, reliable and safe water supplies, dependable wastewater systems and all other basic, public
infrastructure systenls are fimdarnental to the success of these ventures. Thus, without infi-astsucture
improvements the hrther development of the community is limited. In recognition of ibis situation,
local economic development officials and comnlunity leaders have repeatedly requested ;rssistance
from the state in meeting their basic infrastructure needs.
In response to these frequent requests from rural communities and Indian tribes for assistance
in the development cf public infrastructure, the Arizona Department of Commerce has ernbarked on
a study of the feasibility of forming a state financing authority whose primary purpose w~uldbe to
assist ~uracl ommunities to develop and finance public infrastructure.
A consulting team of The hnlaguire Company allti Rauscher Pierce Refsnes, Inc. was retained
to assist the Deparlmetlt in the conduct of the feasibility study for the Greater Arizona Develspment
,4~1thority(G ADA).
'The first steps in assessir~g the need for and the proposed stmcture oi' a state level
infrastructure financing authority are: 1) the development of basic information concerning the
identified infrastructure needs of communities throughout Arizona; 2) a rcvie~vo f the stmct~reus sed
by other states for similar authorities; and 3) a survey of local government oiiicials and other
interested parties for suggestions and recommendations concerning the need fc~rp, urposes of and
structure of such an organization.
Section One - Infrastructure Needs in Arizona
In order to assess the demand for the services that might be provided by such an authority,
several approaches were undertaken to determine the infrastructure needs of communities throughout
Arizona.
Survey of City CIPs
Initially, a review of the identified infrastructure needs of communities throughout Arizona
was undertaken. Specifically, a sample survey of fifteen small to medium size cities tht have
developed a Capital Improvement Plan (CIP) was undertaken. In all cases, the infrastructure needs
identified within the cities' CIPs for a five-year-period were compiled and categorized. Although
some differences existed in the specific years covered by the various CIPs, in all instances a
representative five-year-period was included. As a result of this survey, total needs of $600 rnillioli
were identiiied for the fifteen cities reviewed.
These needs fall into a variety of categories, including street and road projects, public safety
projects, sewer and water system projects and several other categories. The largest single category
included more than $209 miilion in street and road projects and drainage projects. P4ore thai~7 00
projects were specifically identified. The average prc~ject size was slightiy less than $20C,000.
The cities included in the sample represent approximatziy four perce~to f the tota: state
population and seventeen percent of the state's popuiation excluding the two urban counties.
Extrapolating the sample data statewide (baszd on population) indicates statewide municipal needs
of almost $15 billion. Extrapolzting to the non-urban co~:nties population (all but Maricopa and
Pima) indicates needs of almost $3.6 billion.
The Capital Irnprovemect Plans developed by the cities iricluded a combination of hided and
unhnded projects. In most cases the CIPs included only firnded projects and wherc the cities 1.tac.l
identiiied unfunded additional needs these prc!jects were included within the CP. If'additiocal
resources had been identified at the titnt: of developing the CPs, it is likely that the CIPs would have
expanded. As a result, it is dificult to draw any reliab!e conclusions as to the precise amount of
urhnded infrastructure needs within the cities. However, the sample does indicate that sr~bstantial
infrastructure needs do exist throughout the small to rnedium sized conimunities with Arizona.
City Sr~rveyR esults
Streets Public Govt Solid Cultural
Total & Roaas Safety Sewers Water Facilities Waste Airportr, k Rec. Other
Total Value (000,000's) $600.6 200.3 37.7 93.0 52.0 21.6 77.3 28.4 79.0 11.4
# of Projects 728 26 1 62 78 54 34 54 21 137 27
Percent of Projzcts 35.9% 8.5% 10.7% 7.4% 4.7% 7.4% 2.9% 18.8 3.7
MedianProjectCost(OOO's)191.3 181.5 182.3 329.1 500 310.9 339.5 739.6 91.0 i91.2
Amount per capitn (000's) 3,542 1,181 222 548 307 i 27 456 168 484 67.4
In addition to the survey of Capital Improvement Programs of a variety of Arizona cities,
other existing sources of information that reflect infrastructure needs throughout Arizona were also
reviewed.
Transportation Needs
The 1995 Transportation Needs Study, conducted by the Arizona Department of
Transportation in conjunction with local governments throughout the state, indicates a total demand
for transportation projects of almost $7 billion over the next five years. Of this amount, $6.7 billion
is for street and highway purposes (which includes $2 bil!ion for Maricopa County freeways); up to
$464 million is for mass transit; up to $450 million is for airport projects; and up to $ 680 million is
for rail projects.
Wastewater Treatment Needs
Another source of valuable information concerning infrastiucture needs throughout Arizona
is the Wastewater Treatment Facility Needs Survey conducted by the Wastewater Management
Authority every four years. The 1996 survey indicates total need for firastervater treatment facilities
throughout Arizona of zlmost $2.2 billion over 20 years.
Needs on Indian Resewaticws
The National Center for American Indian Enterprise Development conducted an Asscssntent
of Infrastructure Nze& on Arizorrtr Indian Reservations and concluded that "in assi=ssiig, the
infiastrxture needs of Arizona's Indian reservations, it is apparent that an investment of ~t Ileast % 1.4
billion is needed to meet basic needs."
Overall, these various sources of information lead to an indisputable conclusion that there is
s~lbstantialn eed for additional public infrastructure throughwt Arizona. Furthermore, the demand
for infrastructure expailsion substantially exceeds the available resources. In many cases, the
anticipated infrastructure projects identified in the various studies rdlect only a portion of the total
need, projects without a clear source of fiirlding have not been included in the estimates. Thus, totai
need for infrastructure is likely even greater than the numbers reflected in this analysis.
Overall Needs
In summary, based on the information described above, the irlfrastructure needs of the various
political subdivisions, excluding the largest cities, and lndiarl tribes, conservatively total in excess of
$5.5 billion over the next five-year period.
Greater Arizona Development Aurhority
Section Two - Review of Qtlzer State Program
Another fbndamental step in assessing the need for and the proposed structure of a state level
infi-astructure financing authority is the development of basic information concerning the operation,
organization and effectiveness of similar programs operating in other states.
In order to assess the existing programs in other states, a survey of twenty states, with some
type of identified local infrastructure lending program, was undertaken. Not surprisingly, the various
state programs differ widely with regard to purpose, organizational structure, subsidies and the
degree of state involvement. Despite the wide range of existing programs around the country, a
number of generalizations can be drawn that may be usetiil in designing a potential prograrn for
Arizona. In all cases, the review focused on state-funded programs, not federally hnded programs
such as Community Development Bloclc Giants, Farmer's Home Administration loans, or wastewater
treatment revolving hnd loan progrzms.
Specifically, in each state contacted, a variety of characteristics of the program were reviewed.
The charactei-istics surveyed included: the stnlctvre of the program, eligibility by project type and by
jurisdiction. the type of assistance available from the programs (e.g., grants, loans, tech~iczl
assistance, etc.), any financial assistance or subsidies available from the program (e.g., reduced
interest rates, cost sharing, etc.), the source of hnding for any such subsidies, the financing structure
(if any) used by the program to "pool" or leverage infrastructure loans through the program, the
overall eEectiveness of the program, and any suggestions for a new program.
States Snweycd
Alaska
Colorado
Florida
Illinois
Kentucky
Louisiana New Mexico
h5aine New York
Michigan Ncrth Dakota
Nebraska (> hi0
New Hampshire Oklahoma
Oregcn
Pennsylvania
Texas
Virginia
Wisconsin
In general the survey of the states revealed the following:
Eligibility and Qualijicuuons
In most states virtually any type ofpublicly owned infrastructure is eligible f ~ r
participation in the programs.
Similarly, in most states any political szrbdivision authorized to constmuct or operate
infrastructure is eligible for participation in the programs.
All programs have some type of financial capability evaluation for participants to be
eligible to receive a loan. The degree of security required varies substantially from program to
program. Some programs permit borrowers to participate with revenues barely sufficient to meet
the loan repayment requirements; other programs require substantial surplus local revenues
beyond the loan repayment amounts.
Zypes of Assistance
Virtually all states provide substantial technical assistance to the participating local
governments. This assistance often includes advice on the timing and planning of the proposed
infrastructure and its financing.
States varied widely with respect to the types of financial assistance or subsidies available.
Some states provided substantial subsidies in the form of low interest loans, partial gracts and
bond issuance cost subsidies, while others acted only as a conduit bond issuer passing ali costs
directly through to the local borrower.
finding
Most state programs that provide subsidies receive recurring legislative appropriations for
the subsidy costs. This legislative suppcrt comes in a variety of different forins. in some
instances, the state appropriates amounts sufficient to meet the program's annual bond debt
service payments, in others a dedicated revenue source is availzble for the program's use and in
other cases substantial front-end appropriations to a dedicated. special hnd provide a source OF
ongoing earnings to operate the program and finance any subsidies.
In states without ongoing appropriations, some programs that provide small subsidies
(e.g., reduced costs of issuance) use interest earnings from a dedicated (sometimes pledged) k n d
to finance these subsidies as well as their ongoing operating expenses. Other state programs
charge participating local governments an administrative fee, either annually throcghout the Iife of
the loan, upon closing or both. Again, these fees are typically used to provide operating funds for
the program. However, the level of such fees is severely limited in programs that do not prcvide
substantial interest cost subsidies.
Financing Structure
Many state programs issue bonds to finance the loans made to local governments for
infrastructure development. In these instances, the state pr0gra.m lends money to local br~rrowers
and in turn issues bonds filly or partially secured by the loan repayments. The bonds are issued
in the name of the state program.
In virtually all states that issue bonds, the bonds are secured primarily by the local
government revenue derived from the project being financed and used to make loan payments.
Grenicr Arizona Development Authority
In addition, many states use either state-level general obligation bond authority or a state-level
moral obligation (an implicit promise to pay in the event of a default) to improve the credit
rating of the bonds issued by the state authority. In states without moral obligation authority, a
dedicated fund is frequently used to provide additional security for the program's bonds.
Programs that do not rely on either state general obligation or moral obligation security
use several techniques to strengthen their program's creditworthiness.
Typically, a special, dedicated fund has been established to strengthen the program's
credit. Often monies in the fund are available as a debt service reserve, to make bond payments in
the event of a shortfall in local loan payments and earnings from the fund are used to defray
program costs.
In some cases, rnonies in the fund are used to rnztch bond proceeds to make loans to local
governments. In these cases the local loan repayments exceed the debt service on the program's
bonds by the inverse of the matching ratio. These available excess monies strengthen the
program's bond rating beyond the credit of the underlying borrowers.
In several states, a state aid "intercept" mechanism has been i~nplementedb y ~i?ichLI IC
state treasurer (or the distribution zgency) may redirect state-shared-revenues f?om a local
borrower to the bond trustee to prevent a default on the program's bonds in the event a local
borrower hils to make scheduled loan payments.
Most of the programs use a pooled financing structure througl~w hich severa! Ioazis to
local borrowers ate bundled together to form the basis for a single state level bond issue.
However, each borrower is reaponsibie solely for the repayment of its Ioan. There is no cross
liability among the various participants in state level bond issue.
Often the bonds are issued under the provisions of an "open" bond indenture that provides
for a common debt service reserve fund to be shared by all bonds issued by the pragram. Ucder
the "open indenture" structure any dedicated state hnd can also be used as additional security for
the state program's bonds.
In other states the local loans are combined into a single bond issue where the payments
on each loan are segregated from all other loan payments. In these cases, the state program is
simply a "conduit" issuer passing the loan payments and the "credit" of the local borrowers
through to the bond holders. Typically, little, if any, credit enhancement is provided by tile state
program. Programs of this type usually have some other incentives to encourage participation.
The incentives are as varied as the programs and are often related to the legal (constitutional and
statutory) environment of the particular state.
Greater Arizona Developmerrt Authority
Financing Process and Requirements
Virtually all the state programs have worked (and continue to work) to streamline the
application, qualification and financing process. Some states have adopted a single application
process and form for multiple programs. (One state is currently expecting approval to use a single
form for both state and federal assistance programs.)
Virtually all the programs work with the local borrower to facilitate qualification. In inany
instances, state personnel assist local officials in determining the actions that must be taken to
allow the local borrower to qualifl. For example, a local community may need to increase or
restructure its water and sewer charges to increase revenues, prior to receiving assisrance.
Technical Assistance
Most state programs provide substantial technical assistance to local com~nul~ities
throughout the infrastructure development proccss. The assistance typically includes all phases of
the project planning and financing process.
Often state program personnel provide advice and hands-on assistance to local ofticiais in
preparing their capital improvenlents plans, reviewing and evaluating proj~cat lierr~atives,
developing required financial itformation, reviewing and evaluating the available revenges.
icienti@ing modific~tiansto the pledged revenue structure; preparing the program application and
generally assisting throughout the entire development and financing process.
In some states, the technical assistance programs ope~atein dependently of the financing
process and are available to all communities including those not invoived with a state loan fif an)
type.
ORen the participation of small communities in the financing program has been dependent
on the technical assistance. Without substantial technical assistance, illany :;mall cormunities are
not able to develop the basic information and organization necessaql to participate in the state
programs.
Grenter Arizotrn De~~eloprno/lrcl &/tori@
Section Tlzree - Survey of Local Government Officials
As a final step in determining whether a state level infrastructure financing authority would
be beneficial to Arizona, a series of discussions with officials from local government jurisdictions,
including some that might participate in such a program, and other interested persons were
undertaken. The purpose of these discussions was to determine the level of interest in such a
program, if it existed, to ascertain their views of the potential benefits of such an authority, to
solicit their suggestions on what such a program might offer to participating Iocal jurisdictions as
well as their assessment of the relative advantages of different organizational structures.
Members of an Advisory Committee formed by the Arizona Department of Commerce were also
solicited for their thoughts and suggestions concerning the structure and operation of such an
authority.
virtual!^ all the individuals surveyed agreed that such an authority could be valuable. if
properly organized and focused. Specifically, it was generally agreed that the authority's kcus
should be public infrastnlcture of the type cutrently developed by cities, towns, counties and
special purpose districts in Arizona. Further, the authority should assist local governments to
carry out their existing responsibilities without granting additional powers or imposing additional
obligations on these jurisdictions.
Most, especially those from smaller communities, felt that the stare could provide a
valuable service by making qualified technical assistance available to local elected and appointcd
officials through every phase or the iilfrastmcture developinent process. Such assistance wou!d
be valuable during the initial evaluation of local needs and aftcrnative approaches, while s-zviewing
proposed design alternatives, when determining the adequacy of existing revenue sourczs lo
finance the identified project, in construction bidding process, ti~rroughoutt he construction
process and ~iltimatelyd uring the start-up phase of operation of certain facilities.
Many felt that a "pooled" loan program, which u~ouldj3 rovide loans to local governments,
might be of significant value as well. Often smaller communities would financ,e an infrastmr,ture
project over several years, however the costs and complications associated with a bond issue arc
too great given the size of the project. A program that made such financi~gm ore cost effective
and easier would be valuable to many small governments.
Whether specific jurisdictions would be likely to participate in such a program would be
determined by the financial benefits of participation on a case by case basis. In general, larger
jurisdictions with substantial infrastructure programs and established, favorable credit ratings
would be unlikely to participate, while smaller cornmimities that wou!d benefit from the "pooling"
process would be more likely to participate.
Greater Arizo~raI~ evelopn~erArtu thority
In addition, some method of improving the "marketability", or perceived credit
worthiness, of the debt of smaller Arizona communities was viewed as a potential benefit.
Several approaches were suggested with the common objective of lowering the cost of boi-rowis
for the participating ju~isdictions, while not transferring the responsibility for repayment to the
state.
There was no consensus regarding a requirement for a local public vote to authorize
participation in any loan program. Some of those surveyed felt a clear expression of public
support for the proposed infrastructure project, as expressed through voter authorization, is
important. Others felt that no additional requirements, beyond those already in law ibr other
forms of financing, should be imposed.
It was generally expressed that the control over the initiation and scope of any projests
should remain at the local level. The state program sl~oulds upport the local jurisdictions' eirorts,
not replace or redirect them.
In conclusion, those surveyed expressed a clear ccnsensus that there was a genuine nsed
for some form of assistance to local governments outside the major metropalitan arens in
developing needed public infrastructure. A state level authority, by providing technical a d
financing assistance, would help smaller communities meet and address their essential necds in an
effective and eflicient manner.
Greater Arizr~~Im~ e~~elopmAeu~tltotr ity
Section Four. - Overview of Proposed Program
Need for a State Infrastructure Financing Aut/llority
As discussed above, local government officials throughout Arizona, identified several
specific areas of needs that appear common to many rural communities. Frequently, these
communities need basic technical assisiance in determining the scope and nature of an
infrastructure project to undertake in order to respond to existing needs, changing conditions or
state and federal mandates. This technical assistance must be available from the earliest planning
stages in order to assist these jurisdictions in maximizing their use of and the benefits fi-om limited
local resources.
Small communities also often have difficulty accessing the national capital markets due to
the small dollar size of their financing needs and their limited experience in such markets. Due to
some of the fixed costs associated with bond issuance, firlancing srnaller projects inay not be cost
effective. Further, the bond issuance process can be time consuming and uncomfortable for some
local officials.
Often these communities have limited financial reso:rrces. The higher borrowiirg costs
associated with small projects in small communities with lower credit raiings (due to the
infrequency of financings, inexperience, a limited econorxic base, or other factors) eXectivaiy
preclude these communities from financing their capital projects.
Benefits of a State 1rrfassr-r.zrcturcF innncirzg AufhoriA's purpose to aiter the existing system of
governance within the state.
In essence, CTADA will serve as a supportive partner for local government in the;
development and financing of local infrastructure projects without irlcreasing the powers oi
responsibilities of these jurisdictions. It should not be CiADA's sole to evaluate the merh of
locally detertilined projects, as long the communities demonstrate the clear local support for the
project and the associated indebtedness. Those decisions will remain a local issue, best decided ,?1
the local level.
Crearer Arizona Developmettt A~cthoriiy
Sectiotz Five - Services provided by GADA
The various local government officials and other interested parties as well as the survey of
other states' programs indicate the benefits of a state level infi-astructure development authority,
such as GADA. The recommendations that follow reflect their suggestions and community
concerns, in particular, the desirability of a structure to support local project development and to
assist by lowering financing costs through pooling, cost sharing and sta~dardization.
Technical Assistance
The first step in assisting local communities in developing and financing their
infrastructure needs is providing "hands on" technical assistance through ali phases of the
development process. GADA will provide such assistance to local governments throughout the
state. G-OA will be available to assist both elected and appointed officials in understanding the
various aspects to the infrastructure development process and in presenting the pro-jeci to local
residents.
Specifically, GADA wili provide technical expertise and advice during the initial project
conception process and during the plaiming and design of the project, including assisting in the
selection of external technical consultants, when needed. GADA will be zble to assist local
officials evaluate alternative construction options and the associated costs azd benefits.
Subsequent to the planning and design phase, GADA will be able to assist local cormunities in
preparing for and evaluating the financing of the pro-ject and will provide technical support arid
assistance, throughout the financing proczss, regardless of the financing source.
During the construclion phase, GADA can assist local officials oversee the pr-ject and
help assure the timely and appropriate completion of cor~structionin accordance with the design
requirements. GADA will provide direct assistance to local communities, but will nct rep!ace all
the various technical, professional consultants typically retained to assist these comlunities. For
example, while GADA will be able to help in the evaluation, selection and management of a
professional engineer hired to oversee the construction of a wastewater treatment facility, it \.rill
not be able to eliminate the need for such technical expertise.
By working with a variety of local jurisdictions throughout the state, GLDA will be able
to share the prior experiences of other communities. Over time, the "hands on" experience gained
by GAnA will become an invaluable resource for all communities. For example, comparative
information regarding service charges in other cornunities can be important information for
governing board discussions and public information on the costs and benefits of a proposed
infrastiucture project.
Financing Assistance
One means of providing financing assistance to local political subdivisions and Indian
tribes will be through loans to finance infrastructure projects. GADA will combine several,
smaller local loans into a single, larger bond issue for sale in the national financial markets.
Interest on the loans to local participants would be at the same interest rate as the GADA bonds.
As discussed in greater detail below, the GADA bonds will be secured by the loan
payments to be made by the participating local jurisdictions and by the dedicated hnds of the
Authority. In addition, GADA would establish a "back-up" pledge of state shared revenues to
strengthen the credit of smaller cities and counties. These additional credit supports would
effectively provide many con~munitiesw ith a significantly improved bond rating. The improved
bond rating will result in lower interest rates and a lower cost of borrowing for the local
jurisdictions.
In order to facilitate the timely constniction of needed local infrastructure while
maintaining the advantages of a "pooled'" bond issue, GADA should consider establishing a
regular schedule for its financings. Under such at1 approach, G D A might establish a semi-anunal
issue schedule (e.g., each April and October) so that local communities could plan accordingiy
and cocld rely or, monies being available when needed to pay contractors. Alternatively, GADA
could undertake a "pooled" bond issue whenever sufficient loans have been compiled to constitute
an appropriately sized bond issue.
Locd loans fiom CJADA sl-lould match the expected usefill life of the project to be
financed, not to exceed twenty years. To maximize the resources of the Authority, loa~lssh oulci
be repaid with equa! annual payments, with interest paid serniannualiy and principal paid atrmially.
GADA may also be able to work cooperatively with loca! financial institutions to provide
direct loans to local governments for infrastructure projects. In such cases, the loans \vc~u?db e
additionally secured by GADA's dedicated funds.
Alternatively, GADA may provide financing assistance through other forms of credit
enhancement to local borrowers including letter of credit assistance, bond insurance cr
supplemental reserve hnds.
As GADA develops it may be possible to provide short-term financing for up-front project
feasibility and/or design study costs, which could then be included in the overall project financing,
or to provide short-term bridge financing between pooled ioan bond issues.
Participation Requirements
In order receive a GADA loan (through a p~oledlo an bond issue), a local community will
be required to demonstrate the financial capacity to repay the GADA loan. The repayment of the
loan must be guaranteed by a legally binding pledge of a specific local revenue source, such as
Greater Arizr~tm1 )er-elopmeruA tiihority
local water and sewer charges. Typically, such financial capability is demonstrated by historical,
annual revenue collection, net of existing obligations, in an amount greater than the annual !oan
repayment amount. Local borrowers will also provide a "back-up" p!edge of state shared
revenues.
Local participants will also be required to fund a resenre fund in an amount equal to one
year's loan payments. These monies will be available to make a required loan payment (which is
in turn used to make a portion of a GADA bond debt service payment), if a local borrower fails to
make a payment on time and "defaults" on its obligation.
While GADA's dedicated finds will be pledged as additional security for its bonds, these
monies will only be used to make debt seivice payments in the unlikely event of a default by a
local borrower. These monies will not be expected to be used to make routine payments on
behalf of local pzrticipants.
"Pooled" Loan Boixi Issue Slr~ccture
The pooled loan program operated by GADA will provide a silnplified and cost-ef-i'ective
means for small conlrnunities to access the national capital markets. In order to siinpli@ the
financing prGcess as much standardization shculd be developed as possible. For example,
standardized loan agreements and legal forn;s will eliminate the need for customized legal
documents for each local participant, thereby reducing the costs and review time associated lvith
these project financings.
Thc bzsic structure of the pacled loan program will be based or? loans rnade by GrlDA to
local governillcnts for infrastructure projects. These !oms will be secured by a pledge of local
revenues sufficient to repay the loan with interest. As mentioned above, historical, annusl,
pledged revenue ccllections, net of existing obligations, will have to be demonstrated to be
greater than the annual loan repayment amount.
Locally imposed property and sales taxes, sharea highway user revenue find moiues and
charges and fees for local services, such as water and sewer service could be used as pledged
revenues.
Unlike some other state's infi-astructure development authorities that issue bonds secured
by the generaj obligation or ntorul oblzgutim authority of the state, because of Arizona's
constitution, GADA's bonds will have to be additionally secured through several other nieans.
Local cities, towns and counties will be required to provide a "back-up" pledge of state
shared revenues to make loan payments, in the event of a default by the local borrower. 'This
"back-up" pledge of shared revenues will improve the security behind the local loans and
therefore the bond rating of the GADA bonds in two wrys. First, the shared revenues will
provide an additional source of revenue to make loan payments if rieeded. Second, the statewide
Greater Arizotm Ilevelnpment Aufltnrity
collection source for these shared revenues will broaden and divers@ the uilderlying economic
base for the local community's pledged revenues. This second factor is of particular value to
isolated communities and communities heavily dependent on a single industry or employer. The
diversification gained by the "back-up" pledge of state shared revenues substantially reduces the
risk associated with a single, isolated, local borrower.
Specifically, in the event of a loan payment default by a local borrower, thc State
Treasurer will withhold an amount equal to the shortage (plus costs) from the next scheduled
distribution of state shared revenues. The monies withheld will be used to replace the shortage.
GADA will combine several smaller local loans into a single, larger GN>A bond issue.
The proceeds of the GADA bond issue will be used to fund the loans to the participating local
jurisdictions and the loan payments from these local governments will be used to pay the debt
service on the GADA bonds. The interest rate on each loan will be equal to the rate on the
GADA bonds.
Following the closing of the GADA bond issue; the proceeds will be used to k::d the
loans to the local participacts. Monies will be released on a reimbursement basis or directiy to
contractors at the borrower's direction.
Local participants will have to fund a loan paynient reserve filnd in order to participate in
the program. This "10cai'~ reserve will be available to make a required loan payment if the local
borrower defazrlt..;. that is fails to make a schedule loan pyment on time. Thesc reserves \vill be
available only for the local Qovernment that hnded them. In other words, a local reserve hnd
will not be available to a default by another participating jurisdiction.
In addition, GADA will pledge the monies in its dedicated hnd to make GADA bond debt
service payments in the event of a shortage in the local loan payments. These monies will provide
additional security for purchasers of the GADA bonds and will also to act to improve the credit
rating of the GADA bonds, which will result in lower borrowing costs.
The GADA "Reserve " Fund
A crucial aspect of the structure of GADA is the size and nature of its dedicated fUrLding
source. GADA must establish a dedicated fund to serve as an additional source of paytnerrt for its
bonds, in the event of a shortfall in loan payments from a participating local government. In
general, GADA should be able to make at least five dollars of !oms (and issue five dollars i i ~
bonds) for each dollar available in its dedicated fund.
In order to be effective, the monies held by GADA must be irrevocably dedicated to the
purposes of the Authority. This dedication must be similar to the dedication of the Highway 'lJser
Revenue Fund to street and highway purposes. Without such dedication, the moiies will not be
Grcnrer Arizortn I>eveloptnent Ardf~ority
considered permanently available to secure any GADA bonds and the anticipated benefits will not
be received (and passed on to the local borrowers).
The source of funding for GADA's dedicated fund is of less importance than the
permanence and the amount of the dedicated monies.
Any appropriated monies received by GADA (excluding loan payments) should be
deposited to a single hnd to be used exclusively for the purposes of GADA. Monies in the
GADA fknd should be invested by the State Treasurer and the earnings returned to the fund.
Earnings should be available to pay for the administration of the Authority, the Authority staff and
overhead, the costs of technical assistance and the costs associated with the issuance of GfiDA's
bonds.
The amount and nature of the dedicated n~or,iesa re crucial to the success of GADA.
Without sufficient funds, GADA's bonds will lack the critical additional s2curity provided by the
dedicated monies. This will reduce the creditworthiness of the GADA bonds and raise the cost of
borrowing funds through GADA. As a result it will be iess likely ihat e!igible local governments
will participate in the GADA program.
Furthermore, if the monies in the dedicated fund are insufficient, the earnings will not
support the necessary level of technical assistance to local communities. Technical assistame is
needed at ths eailiest stages of the infrastructure development process, zs local communities
attempt to define and develop proje~tsth at wi!l eventually be financed. Therefore. G D Aw ill
begin to incur technica! assistance costs shortly after st2rt up and will nzed subsiantizl f o:~t-end
hnding to carry out this critical aspect of its mission. In short, without adequate funding, G.4DA
will fdil.
Eligibility and Scope of Projects
All counties, cities, towns. special districts and Indian tribes should be eligible to
participate in the programs offered by GPLDA. No categorical exclusion by popuiation, size or
geographic location should be imposed or, participation.
Similarly, any publicly owned infrastnicture constnlcted by these jurisdictions should be
eligible for financing assistance through the author it.^.
Although the primary focus of GADA will be on providing assistance and support to
smaller communities, a categorical exclusion of larger communities would be inappropriate for ri
state level organization like the Authority. Jn practice, paxicipation will be self regulating.
Medium sized and larger communities, with more diversified economies and higher credit ratings,
will receive no financial benefit from the Authority's "pooled" loan program and will therefore not
participate. It is possible that some of these communities may be able to benefit from the
experience and expertise GADA will develop through working vJith local governments over time.
To the extent this knowledge can be of assistance to any Arizona community, it should be
available.
Any maximum limits on the size of a project that may receive assistance should be
carehlly considered. Larger projects are the most difficult for small communities to complete and
are oRen those with the highest local priority as a result of a federal or state mandate. Snlaller
communities may frequently be able to complete routine capital in~provementsw ith available
reserves, but are unable to undertake larger projects due to the financing requirements.
The need for a project size limit should be reviewed after several years of GAI3k's
operation to determine if circumstances have changed. At the same time, the possibility of a limit
on the total amount of loans to a single community should also be reviewed. Again, such a limit
need not be initially imposed because the financial capability requirements of the loan program
will impose a natural (market) limit on the loan capacity of each participati~gc ommunity.
Prcjcct Oriorifization a~zdS election
The Authority should develop criteria and guideli~esfo r the prio~itizationo f local
infrastructure projects for the receipt of tec'mical and financing assistance. These guidelirjes will
allow GADA to focus its limited resources on the prcjects with the highest priority from it
statewide perspective.
The prioritization criteria should be developed by the AutRority following care&!
consideratior-, of the suggestions and recommendations of local public officials from throughcut
the state. However, some general priorities can be suggested as an initial system.
Projects that I) meet current infi-astn~cturen eeds; 2) address public health and safely
concerns, OR 3) provide basic infrastructure for growing areas (projected within the nex? five
years) shculd be given the highest priority. Basic infrastn~cturep rojects needcd to encourage
general economic development sh~uldbe given the secocd highest priority. Projects that provide
other types of infrastructure for other public purpose should be given third priority.
Local jurisdictions should submit potential projects for evaluation on an annual basis.
Based on the projects submitted and using the established criteria, GADA should prioritize the
projects for technical and financing assistance. Typically, a project will be eiigible for technicd
assistance prior to being prioritized for financing assistance.
Selected projects should be announced following the evaluatitx~p rocess and shou!d be
eligible for assistance immediately thereafter. 'The number oSprojec.ts selected each year will vary
depending on the complexity of the projects and the availability of GIWA resources Mal~y
projects receiving technical assistance may not be completed in a single year and therefore
ongoing project requirements will have to be considered in determining the number of projects to
be selected for the following year. If the projects selected are completed prior to the next annual
Greater Arizona Descloptnerrt Autlroriy
application and selection process, GADA may be able to provide assistance to additional
communities from the previous list of applicants.
Technical assistance should be available to local communities throughout the project
development process. This assistance from GADA should be available on an as needed basis,
however, GADA cannot and should not replace the i~volvemento f local officials or their qualified
external professional consultants. Rather, GADA experience and expertise should suppletnent
and comp!iment the local "project team". Local governments must commit the time and resources
necessary to complete their infrastructure project. GADA cannot devote scarce resources to
projects that do not receive essential local support.
Financing assistance should be available to local communities when infrastructure projects
are ready for construction. OAen the pre-constnlction phase may take several years. Projects
should be selected for financing assistance when the necessary feasibility studies, engineering
design and specifications reviews and other required analyses have been completed. In addition, 2
source of revenue that will be pledged to the repayrneld of the GADA loan will have to be
identified and evaluated and all necessary approvals needed to proceed with the pr9-iest will: have
to be in place.
Greater Arizotrrr I ~ e ~ ~ ~ f o ~A~trrlnlreorritryt
Section Six - GADA Organizational Structure and Admiu~istration
Organizutional Structure
GADA must be established as an independent Authority, separate from the State of
Arizona. It should be controlled by a board of directors composed of nine members. Five
members appointed by the Governor and approved by the state Senate. In addition, the Director
of the Department of Commerce, the Director of the Department of Transportation, the Director
of the Department of Environmental Quality and the State Treasurer should serve as ex qfficio
voting members of the board.
The Chairman of the board should be the appointed mernber serving the final pear of his
term. If that member was appointed to fill a vacancy less than one year earlier (or chooses not to
serve as chairman), the member next nearest the end his term should serve as chairman.
Appointed members should be permitted to serve up to two consecutive terms.
The appointed members of the board should be private citizens representing difl2rent areas
of the state. The appointed members of the board should be appointed for staggered, terms of
five years. Vacancies should be filled by appointment for the remainder sf the unexpired term.
Appointed members should continue to serve until a successor has beer, appointed by the
Governor.
All policies and procedures of the Authority should be approved by the Board. The Bo~rd
should also finally determine projects to receive technical and financing assistance. T"r~!eh a r d
should aFpi-OVe all loans and issue bonds in the name of the Authority.
The Authority should be staffed by competent professionals selected by the Diruzt~ro fthe
Department of Commerce. The department should provide space and equipment for the
Authority staff and the Board.
Initially an executive director, a program specialist and an administrative assistan! should
be assigned to the Authority. As the programs of the Authority develop, additional professional
staff may be required. The salaries, benefits and expense of GADA staff should be paid fiom
earnings on the Authority's dedicated hnd.
In addition to the internal staff, GADA will need to retain ex?ernal professionals tc! assist
in providing technical assistance to local participants. T'nese external professicnals may becorne
less necessary as the GADA staff expands and gaitis experience. However, some exte~nal
professional assistance will continue to be required on an as needed basis through the life of the
program. These professionals should also be paid with earnings from the dedicated fund.
As with all development and financing authorities, GADA will be expected to retain
professional assistance in connection with issuing bonds. Bond counsel, a financial advisor,
underwriters, a trustee and various other professionals will be required. Typically, these costs
would be paid with proceeds of the "pooled" bond issue and included in the amount of the local
loan repayments. However, to the extent that sufficient rnonies are available, the Authority may
choose to pay some of these costs from earnings thereby reducing the costs borne by the local
borrowers.
Because the Authority will be issuing bonds and managing substantial amounts of money,
it is essential that adequate financial record keeping system be initially established. Detailed
revenue and expenses tracking as well as an automated loan payment monitoring system should be
implemented.
Carehl accounting and allocation of all dedicated monies must be maintained. The
financial records of the Authority should be maintained in accordance with the standardized
practices applicable to government agencies established by the Governmental -4ccounting
Standards Board (GASB) and audited by an independent zuditor annually. Detailed repofis of all
expenditures and revenues should be present to the Board quarterly and an annual repol-, prepared
and presented to the Governor and the Legislature. Again the cosr s associated with these
activities should be paid with earnings.
Finally, it may be permissible to redirect some federal hnds received by thc state a11d
particularly by the Department of Commerce, to pay some of the costs incurred by the Authority
To the extent such reallocation is possible. it shsu!d be considered.
Interrelntjon with Other Bonding E~itities
The MDA will join the existing \,'astelvater Management Authority and the plarined
State (Tra~sportation)I nfrastructure Bank as n source of assistance t~ locat communities
developing irfrastructure.
The Wastewater Management Autlroritv is responsible for overseeing the wastcvv~ater
treatment revolving hnd, which makes low cost loails to local commufiitities to finance the cost of
treatment facilities. The WMA will also, probably, be responsible for the drinking water revolving
hnd authorized by the federal Clean Water Act, which will provide similar loans for drizking
water projects.
The State (Transportation) Infrastructure Bank is currently beilrg established by the
Arizona Department of Transportation in response to a federal pilot program and will provide
assistance to local communities in developing streets and highways.
Although the specific purpose and mission of each of the organizations is different, all
have a common objective of helping local governments develop infrastructure. As a consequence
it is critically important that all three organizations cooperate and coordinate their efforts.
GADA will have the broadest charge of any of these entities and therefore niay be able to
assist communities that cannot receive assistance for certain projects from the other state level
organizations. In some instances, a combination of GADA assistance and assistance from the SLB
or WMA may facilitate the completion of a project.
(knter Arizorm Develq>rnent Authority
Section Seven - Start-up Procedures
Overview
The first year of operation of a new organization like GADA is both a difficult and
critically important phase in the entire life of the organization. The establishment of appropriate
rules, procedures and operating practices will largely determine the fbture success or failure of the
program.
The transition from a conceptual proposal to an operating organization is a difficult
process that requires careful planning and scheduling. The following time line illustrates some of
the major events that should occur during the Authority's first year of operation.
Time line
Date
Spring 1997
April
h4a.y
July
Mid-summer
August
Event
L,egislativc: Hearings on M A
legislation
Enactment of legislation
Selection of GADA staE by
Commerce Director
Selec,tion of private members by
Governor
Staff begins preparation of draft
tules znd procedures
Staff establishes accounting
system for dedicated monies
Infoimal meeting of board
members to discuss procedures
Legislation becomes effective
First Board Meeting
Review of draft nlles and
procedures for selectiori of
pro-iects
Comments
Local suppcrt, if possible
In miicipation of start-up
90 days after the end of
legislative session
Greater Arizona Devetopnrcrtt Author@
August (con't) First Board Meeting (con't)
Adoption of operating budget for
current fiscal year
Initial public announcement of
GADA organization and
programs
Annual League of Cities
Conference
September Second Board Meeting
Adoption of rules and procedures
and submission to rulemaking
process
October
Governor's Rural Development
Co nf e, rence
Third Board Meeting
Quarterly Report or" revenues and
expenses
Distribution of Prelimi~arj
application procedures (subject to
final adoption of nrles)
Regional outreach seminars on
GADA's activities
November Fourth Board Meeting
Final approval of rules and
procedures
Announcement of application
deadline of Febnlary 1
December
January 1998
Fifth Board Meeting
Selection of program consultants
Staff assist locai olficials in
preparing application forms
Sixth Board Meeting
Opportuility for Presentation
Oppoitunity for Presentatioi:
Greater Ariznrru Develo,7metrt Acrtltorify
January 1998 Quarterly Report of revenues and
(con't) expenses
Regional outreach seminars on
GADA's activities
Februaiy
March
May
June
Application for assistance due
Seventh Board Meeting
Preliminary review of applications
Staff reviews applications and
scores based on criteria
Eighth Board Meeting
Preliminary review of project
prioritizations for technical and
financing assistance
Ninth Board Meeting
Ann~uncement of projects
selected for technics1 assistance
Quarterly Report of revenues and
expenditures
Initial technical assistznce
meeting on selected projects
Staff develops budget for next
fiscal year
Tenth Board Meetiag
Announcement of projects
selected for financing assistance
Budget for next fiscal year
adopted
Eleventh Board Meeting
Pooled loan bond issue scheduled
for September
Staff prepares for close of fiscal
year
July
August
September
October
'I'welfth Board Meeting
Quarterly Report of revenues and
expenditures
Board reviews progress on bond
issue
Thirteenth Board Meeting
Annual report on revenues and
expenditures
Report on technical assistance
projects
Board reviews progress on bond
issue
Annual League of Cities
Conference
Fourteenth Board Meeting
Board issues pooled loan bonds
Audit of prior year financial
records
Staff prepares annual report
Governor's Rural Development
Conference
Fifteenth Board Meeting
Quarterly Report on revenues and
expenditures
Greater Arizotra I~evelol,metA~uf thority
Opportunity for presentatio~ls
Opportunity for presentations